Question

1. Your company is considering a project which requires a $30,000 initial investment with a predicted salvage value at the end of its six year useful life of $8,000. You expect an annual return of $6,000 for the six year study period. Additionally, the equipment will require an overhaul costing $1,000 at the end of the third year. Evaluate the project using the IRR method and a MARR of 8.5%.

Answer 1

$1441.90

Step-by-step explanation:

PW = -30,000 + 6,000(P/A, 8.5%, 6) - 1,000(P/F, 8.5%, 3) + 8,000(P/F, 8.5%, 6)

= -30,000 + 6,000(4.5536) - 1,000(0.7829) + 8,000(0.6129)

= -30,000 + 27,321.60 - 782.90 + 4,903.20

= $1,441.90

Answer 2

PW = -30,000 + 6,000(P/A, 8.5%, 6) - 1,000(P/F, 8.5%, 3) + 8,000(P/F, 8.5%, 6)

= -30,000 + 6,000(4.5536) - 1,000(0.7829) + 8,000(0.6129)

= -30,000 + 27,321.60 - 782.90 + 4,903.20

= $1,441.90

Project's worth will be $1,441.90 as calculated above.

Negative sign shows cash outflow and positive sign shows cash inflow.